Basically, they’re going to weasel away your financial privacy with cryptocurrencies, and Warren is the worst as even the government’s expert witness with their blockchain analysis firm said money laundering was a small percentage of the mixing transactions. And those mixing transactions cost fees, so people are really wanting privacy so others can’t see how much cryptocurrency they hold, putting them at risk of wrench attacks, kidnappings…,where KYC isn’t Know Your Customer, but Kill Your Customer. <\/p>\n\n\n\n
https:\/\/www.therage.co\/clarity-act-senate-banking\/<\/a><\/p>\n\n\n By Pedro Solimano and L0la L33tz<\/p>\n\n\n\n The Senate Banking Committee passed its part<\/u><\/a> of the Digital Asset Market Clarity Act 15-9 out of committee after more than two hours of deliberations on Thursday, positioning the bill for a full Senate vote after the text is merged with the Senate Agriculture Committee\u2019s draft on the Commodity Futures Trading Commission\u2019s authority. <\/p>\n\n\n\n Over the past months, the Banking Committee\u2019s draft has been widely criticized for expanding<\/a> surveillance powers over digital assets, while opponents have argued that the bill\u2019s powers do not go far enough. During Thursday\u2019s markup, Wyoming Senator Cynthia Lummis defended the bill\u2019s law enforcement provisions, telling the committee: \u201cThis is a pro-law enforcement bill.\u201d <\/p>\n\n\n\n Even though the CLARITY Act was sold as ending regulation by prosecution, it\u2019s now set to expand PATRIOT Act special measures to digital assets while arguably only narrowly improving on the prosecutorial trapdoor that convicted Tornado Cash and Samourai developers. <\/p>\n\n\n\n Lummis pointed to the bill\u2019s extensive Bank Secrecy Act integration as evidence of its enforcement focus. \u201cThis bill, our bill, I think references the BSA 16 times,\u201d she said. \u201cSo we\u2019re really tying BSA into our bill.\u201d The Bank Secrecy Act is the 1970 law that requires financial institutions to employ KYC measures and monitor and report customer transactions to FinCEN under criminal penalties. <\/p>\n\n\n\n During Thursday\u2019s hearing, Lummis rattled off a list of surveillance provisions: Treasury\u2019s expanded special measures authority, studies on mixers and tumblers, annual reports on foreign jurisdictions\u2019 AML compliance, and temporary holds for suspicious activities. <\/p>\n\n\n\n Senator Elizabeth Warren disagreed that the bill went far enough, defending her failed amendment attempts to restore OFAC\u2019s authority to sanction Tornado Cash. She called the platform a \u201cnotorious mixer that had been used to launder more than $7 billion for criminals and foreign entities, including more than $450 million for a North Korean hacking group.\u201d Warren asked rhetorically, \u201cWhat purpose does Tornado Cash serve except to hide where the money came from and where the money is going to? It\u2019s the terrorists, money launderers, Iran.\u201d <\/p>\n\n\n\n But Tornado Cash did not launder $7 billion. The figure represents the total amount transacted in the charged time period, of which around $1.5 billion is estimated<\/u><\/a> to have been of illicit origin. Lummis countered Warren\u2019s criticisms explaining that the bill was already designed to target illicit behavior.<\/p>\n\n\n\n Crypto industry experts were quick to call out the dissonance. As CoinCenter CEO Peter van Valkenburgh wrote<\/u><\/a> on X in response to Senator Kim\u2019s failed amendment to add a distinct BSA category for DeFi protocols, \u201cthere is so much new BSA authority in this bill. There will be so much more collection of intimate data about innocent Americans as a result. That this still is not acceptable to surveillance hawks is disappointing.\u201d <\/p>\n\n\n\n Van Valkenburgh also rebutted<\/u><\/a> Warren\u2019s characterization of Tornado Cash as a \u201cservice,\u201d noting that it was \u201cimmutable software that could never have been effectively sanctioned without full bans on publishing the blockchain,\u201d he said. Warren\u2019s amendment would have directed OFAC to do the impossible and try to punish an immutable smart contract, he argued. <\/p>\n\n\n\n \u201cIt won\u2019t work and would only ban Americans from using good privacy tools.\u201d <\/p>\n\n\n\n The bill references Section 5138A of the PATRIOT Act four times across titles II and III. Section 5318A, added to the Bank Secrecy Act in 2001, gives the US Treasury five escalating \u201cspecial measures\u201d it can impose when it finds a foreign jurisdiction, institution, class of transaction or type of account to be of \u201cprimary money laundering concern.\u201d<\/p>\n\n\n\n Historically it has been used sparingly, mostly against foreign banks in countries like Myanmar, North Korea, and Iran. Now the provision finds itself inside crypto legislation, meaning Treasury authorities can treat entire protocols as \u201cprimary money laundering concerns,\u201d potentially limiting the availability of privacy tools. The Tornado Cash sanctions already attempted this, but with Section 5318A, Treasury would have statutory authority to essentially achieve the same effect, this time avoiding the Fifth Circuit\u2019s ability to review whether immutable code qualifies as sanctionable \u201cproperty,\u201d as no sanctions would be imposed. <\/p>\n\n\n\n Worse yet, Section 303 amends Section 5318A to add a sixth special measure category dubbed \u201ccertain transmittal of funds.\u201d But the bill doesn\u2019t define what that entails, leaving Treasury officials with broad discretion over which cryptocurrency transactions fall under the new category. <\/p>\n\n\n\n The expansion of the PATRIOT Act to digital assets is nothing new. Last year, the White House tasked<\/a> the Treasury with finalizing a special measure rule for digital assets, which FinCEN Director Andrea Gacki had stated<\/a> to have been in the works.<\/p>\n\n\n\n The bill\u2019s bipartisan support also came at a cost. Last-minute negotiations between Republicans and Democrats resulted in a compromise that removed language from Section 301 referencing the Blockchain Regulatory Certainty Act, according to<\/u><\/a> sources familiar with the discussions.<\/p>\n\n\n\n Section 301 calls on Treasury and the Securities and Exchange Commission (SEC) to address the regulatory obligations of individuals operating \u201cnon-decentralized finance trading protocols\u201d that act as securities intermediaries and fall under the Bank Secrecy Act.<\/p>\n\n\n\n With the references to the BRCA intact, non-custodial developers would have stood protected from impeding BSA obligations by failing to qualify as a financial intermediary. The change now means that Section 301 could require DeFi protocols to comply with Bank Secrecy Act obligations even if their developers would otherwise be protected from being qualified as money transmitters under BRCA provisions.<\/p>\n\n\n\n But the section continues to contain protections for sufficiently decentralized projects, writes<\/u><\/a> CoinCenter, which remains optimistic on the bill: \u201cthe section is premised on a meaningful distinction between decentralized protocols and \u2018non-decentralized\u2019 protocols in which a group of persons under common control have the ability to alter the protocol or restrict access.\u201d<\/p>\n\n\n\n The exact measure for what \u201ccommon control\u201d is, however, remains unclear, and rather appears to be subject to interpretation. Over the past years, we have seen US courts take vastly different stances on technologies that virtually offer the same levels of decentralization \u2013 the most stark example<\/u><\/a> being the same Judge qualifying Uniswap as decentralized, while allowing arguments to proceed that Tornado Cash isn\u2019t. To the contrary, the European Central Bank has published<\/u><\/a> a paper finding Uniswap not sufficiently decentralized \u2013 highlighting just how interpretative a definition of common control can be. <\/p>\n\n\n\n The White House tasked<\/u><\/a> Congress to consider passing laws for the application of the Bank Secrecy Act (BSA) last year, despite growing criticism of the BSA\u2019s effectiveness. As Cato Institute has found<\/u><\/a>, with 28.7M reports filed and only 275 launched investigations, \u201cthe BSA doesn\u2019t work,\u201d while others question<\/u><\/a> whether the law is in line with the US Constitution. <\/p>\n\n\n\n The banking sector yet continues to lobby for its application to cryptocurrencies, conceding<\/u><\/a> that it \u201crequires tens of thousands of employees and countless hours.\u201d Reforms<\/u><\/a> of the BSA will be discussed<\/u><\/a> by the House Financial Services Committee next week.<\/p>\n\n\n\n Industry groups praised the bill but flagged the unresolved Section 301 issue. \u201cWe still have work to do on Section 301 to protect non-controlling developers and providers,\u201d said<\/u><\/a> the DeFi Education Fund. <\/p>\n\n\n\n Section 604 of the CLARITY Act incorporates the Blockchain Regulatory Certainty Act as the bills most anticipated section \u2013 a provision meant to protect developers who do not control user funds from being qualified as money transmitters under 18 U.S.C. \u00a7 1960. <\/p>\n\n\n\nFeelings are mixed as U.S. Senate Banking Committee passes landmark cryptocurrency regulation while tension over core components remain.<\/h5>\n\n\n\n
How Much Surveillance is Enough Surveillance?<\/strong><\/h2>\n\n\n\n
PATRIOT Act Provisions, BSA Risks<\/strong><\/h2>\n\n\n\n
Luke-Warm Developer Protections<\/strong><\/h2>\n\n\n\n